MONEY AND CREDIT CLASS 10 (NCERT) NOTES

 DEVELOPMENT CLASS 10 (NCERT) PDF

Q: How is money used in everyday life? Explain with examples. [CBSE 2014] Or Q: "The use of money spans a very large part of our everyday life". Support the statement. [CBSE 2021 Comptt.] Hint:  (i) We use money to purchase goods and services.  (ii) People put their surplus money in banks to earn profit. (iii) Money is used for international trade.  (iv) Money is used to pay factors of production. (v) Money is also used to create wealth.

Money in Daily Life

• Money plays a significant role in our daily lives.
• Ubiquitous presence in various transactions.

Everyday Transactions

• Easily noticeable in daily routines.
• Examples: shopping, paying bills, dining out, and more.
• Money's pervasive influence on our lives.

The Role of Money in Transactions

Q: Mention the most essential feature of barter system. Q: Why is money called a medium of exchange? Or Q: Why is money accepted as a medium of exchange ? [CBSE 2018 Comptt.] Q: What is a barter system? [CBSE 2015(D)] Q: Explain double coincidence of wants with the help of an example. Q: What is the double coincidence of wants? Explain with the help of an example. [CBSE 2015 (0)]

Types of Transactions:

• Transactions involve money in various forms.
• Goods and services are bought and sold.
• Some involve future payment promises. (EMI)

Why Money in Transactions?

• Money is universally accepted.
• It simplifies exchanges.
• People prefer receiving money, which can be used for various needs.

If Not:

Example: Shoe Manufacturer

• A shoe manufacturer sells shoes and wants to buy wheat.
• They exchange shoes for money first.
• Then, money is exchanged for wheat.

Double coincidence of wants

• Without money, direct barter trade (Shoes to Wheat) would be challenging.

Why?

Barter trade requires finding someone: 

• who wants what you have and 
• has what you need.

Imagine Situation:

Finding a Matching Trade:

• Without money, he must find a wheat farmer who both sells wheat and wants shoes in return.

Double Coincidence of Wants

• In barter trade , both parties must want each other's goods.
• Known as "double coincidence of wants."

Mention any three limitations of the barter system.

[CBSE 2008 (D)]

• Two people with different types of needs and goods must be there to satisfy each other's needs.
• There are many products which cannot be it divided.
• Valuation of goods is very difficult. 
• Barter system is time consuming.

Q: Analyse the role of money as a medium of exchange. Or Q: Explain money as a medium of exchange. [CBSE 2015 (0)] Or Q: How can money easily exchange it for goods or services? Give an example to explain. [CBSE 2016 (D)] Or Q: How does the use of money make it easier to exchange things ? Explain with examples. [CBSE 2023 (0)] NCERT: How does money solve the problem of double coincidence of wants ? Explain with an example of your own. How does money eliminate the need of double coincidence of wants ? [CBSE 2016(F) Comptt.]

Money as a "medium of exchange" Why?

• Money removes the need for this coincidence.
• In a money-based economy, the shoe manufacturer only needs a buyer for shoes.
• Money acts as an intermediary, allowing easy exchange.
• Money is termed a "medium of exchange."

Evolution of Money:

Q: Distinguish between the modern and traditional forms of money. Q: What is included in the modern forms of money ? Explain. Q: "Forms of currency have undergone several changes since early times". Elucidate. [CBSE 2014, 15]

Early Forms of Money

• Before coins, diverse items served as money.
• Indians used grains and cattle as money.

The Era of Metallic Coins:

• Metallic coins (gold, silver, copper) emerged.
• This phase lasted until the last centuries.

Currency

What is currency? Explain any three features of modern Indian currency.

1. No Precious Metals: 

• Modern currency is not backed by precious metals like gold, silver, or copper.

2. Lack of Intrinsic Value: 

• Unlike grain and cattle, modern currency lacks inherent value and is not useful for everyday purposes.

3. Paper Notes and Coins: 

• Modern forms of money primarily consist of paper notes and coins.

4. No Inherent Use: 

• Modern currency serves as a medium of exchange but has no intrinsic utility of its own.

Why is it accepted as a medium of exchange? 

Q: "The rupee is widely accepted as medium of exchange.' Explain. [CBSE 2008 (D), 2012, 2013 (D), 2015 (0)]

1. Government Authorization: 

• Modern currency is accepted as a medium of exchange because it is authorized by the government.

2. Reserve Bank of India: 

• In India, currency notes are issued by the Reserve Bank of India on behalf of the central government.

Q: The currency notes on behalf of the Central Government are issued by whom? (2011 D) Q: Why one cannot refuse a payment made in rupees in India? [CBSE 2016(D)]

3. Legal Monopoly of RBI: 

• Indian law prohibits individuals or organizations from issuing currency, establishing a legal monopoly.

4. Legal Tender: 

• Indian law also designates the rupee as legal tender, meaning it must be accepted for settling transactions within India.

5. Widespread Acceptance: 

• Due to legal backing, individuals and businesses in India cannot legally refuse payments made in rupees, making it widely accepted as a medium of exchange.

Deposits with Banks

Q: Why do people deposit money in banks? Give two reasons. Q: What are demand deposits? Q: What are the advantages of depositing money in the banks? [CBSE 2010 (F)] Q: How are deposits with the banks beneficial for individuals as well as for the nation? Explain with examples. [CBSE 2015 (D), 2016 (0)] Q: What are demand deposits? What are their advantages ? [CBSE March 2012, 2016 (F) Comptt.]

1. Deposit with Banks:

• People hold money as deposits in banks in addition to physical currency.

2. Monthly Surplus:

• People often have surplus cash at the start of the month, for example, when they receive their salaries.

3. Bank Accounts:

• To manage this surplus, they open bank accounts and deposit the extra cash.

4. Interest Earnings

• Banks accept deposits and pay interest on them, allowing people to earn from their savings.

5. Safety and Accessibility:

• Money deposited in banks is safe and can be withdrawn when needed, providing security and accessibility.

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Demand Deposits:

• These types of deposits are known as "demand deposits" because they can be withdrawn on demand by the account holder.

Other Form of Demand Deposits:

1. Money-Like Feature:

• Act like money, especially as a medium of exchange.

2. Cheque Payments:

People often make payments using cheques instead of cash when they have a bank account.

3. Cheque Function:

• A cheque is a written instruction to the bank to transfer a specific amount from the payer's account to the recipient's account.

4. Payment Convenience:

• Directly settle payments without the use of cash.
• Checque: Constitute money in the modern economy.

• Currency and deposits — constitute the modern banking system.

Why are demand deposits considered as money ? [CBSE 2010 (F)]

Or

How do demand deposits facilitate Transactions ?

[CBSE March 2012]

Or

What are demand deposits? List any two advantages of demand deposits. [CBSE 2014]

(i) Demand deposits are the deposits which can be encashed by the account holder any time. 

(ii) They can be used as a medium of exchange. 

(iii) They are easily acceptable.

(iv) They help in settling payments without the use

of cash.

LOAN ACTIVITIES OF BANKS

Q: How do the deposits with banks become their source of income ?[CBSE 2016(D)] Q: Explain the loan activities of banks. Or Q: What do the banks do with the deposits which they accept from the public? Explain. [CBSE 2009 (F)] Q: Explain with examples the role of banks in Ans. When the economic development of the country. [CBSE 2014, 2020 (D] Or Q: "Explain various functions of banks in India. [CBSE 2022]

1. Deposit Handling:

• Banks receive deposits from the public, but they don't keep all of it as cash.

2. Reserve System:

• Banks maintain a small portion of their deposits in cash reserves. For instance, Indian banks typically hold around 15% of deposits as cash.

3. Withdrawal Provision:

• This cash reserve serves as a provision to meet the withdrawal needs of depositors on any given day.

Use of Deposits by Banks:

1. Loan Expansion:

• Banks primarily use a significant portion of deposits to provide loans, fulfilling various economic needs.

2. Mediating Role:

• Banks act as intermediaries between depositors with surplus funds and borrowers in need. 

3. Interest Rate Difference:

• Banks charge higher interest rates on loans than they offer on deposits, generating primary income sources.

TWO DIFFERENT CREDIT SITUATIONS

Q: "Credit may be useful or may put the creditor into a debt trap.' Explain. Or Q: "Credit is useful as well as harmful, it depends on the risk involved." Support the statement with examples. [CBSE 2012] Or Q: "Analyse the situation in which credit pushes the borrower into a situation from which recovery is painful. [CBSE 2022] Q: 'Cheap and affordable credit is crucial for the country's development.' Explain. [CBSE March 2011, 2014(O), 2018 (O), 2022] Q: Why is it necessary for the banks and cooperative societies to increase their lending facilities in rural areas ? Explain. [CBSE 2015 (D)] or Q: "Credit has its own unique role for development". Justify the statement with arguments. [CBSE 2016 (0)] Or Q: Describe the vital and positive role of credit with examples. [CBSE 2016 (D), 2019 (0)] Or Q: Explain with example the role of credit for development.[CBSE 2022] Q: Why should the banks and cooperative societies provide more loan facilities to the rural households in India? Give four reasons. [CBSE 2008 (D), March 2012]

Day-to-day activities 

• Required credit in some form or the other. 

Credit (loan): 

• Refers to an agreement in which the lender supplies the borrower with money, goods or services in return for the promise of future payment. 

Two examples:

Credit Positive Role:

Salim's Credit Benefit:

• Salim uses credit for: 
• working capital, 
• aiding production expenses, 
• timely completion, and 
• boosting earnings. 

Credit is crucial and beneficial here.

Rural Credit for Crop Production:

1. Primary Need: 

• Credit demand in rural areas mainly centers around crop production.

2. Expense Agriculture Inputs: 

• Crop production incurs costs like seeds, fertilizers, pesticides, water, electricity, and equipment repairs.

3. Timing Gap: 

• Farmers buy these inputs months before crop sale, creating a 3-4 month gap.

4. Loan Timing: 

• Farmers typically secure crop loans at the season's start and repay after harvest.

5. Income Dependence: 

• Loan repayment hinges on farming income.

Credit negative Role:

Swapna's Debt Trap:

Crop failure led to Swapna's: 

• Inability to repay the loan, 
• Forcing her to sell some land. 
• Instead of improving her finances, credit worsened her situation, exemplifying a debt trap – a painful recovery scenario caused by credit.

Conclusion:

• Credit's value depends on the situation's risks and the availability of support during losses.

TERMS OF CREDIT

1. Interest Rate:

• Loan agreements specify an interest rate, added to the principal amount for repayment.

2. Collateral (loan guarantee):

• Lenders may ask for collateral, which is an asset (like land, vehicles, deposits, livestock) owned by the borrower, serving as a loan guarantee.

Q: Why do banks ask for collateral while giving credit to a borrower? (2014 D, 2011 OD)

3. Lender's Right:

• If repayment fails, the lender can sell the collateral to recover the loan.

4. Common Collateral used for borrowing:

• Common examples of collateral include land titles, bank deposits, and livestock.

Conclusion:

• Interest rate, collateral and documentation requirement, and the mode of repayment together comprise what is called the terms of credit. 

Note:

The terms of credit vary substantially from one credit arrangement to another. 

• They may vary depending on the nature of the lender and the borrower. 

Loans from Cooperatives

Cooperative Credit in Rural Areas:

1. Cooperative Societies: 

• Besides banks, cooperatives are a major source of affordable rural credit.

2. Diverse Cooperatives: 

• Cooperatives come in various forms like farmers, weavers, or industrial workers cooperatives.

3. Krishak Cooperative Example: 

• Krishak Cooperative, near Sonpur, has 2300 farmer members. 
• It uses their deposits as collateral to secure a bank loan, which is then used to provide loans to its members.
• Once these loans are repaid, another round of lending can take place.

Loan Purposes: 

• Krishak Cooperative offers loans for agricultural tools, cultivation, trade, fishery, housing, and other expenses.

Types of Loans: Formal and Informal:

(i) Which is the most important informal source of credit as per the given pie chart ? [CBSE 2008 (D)] (ii) Which is the most important source of credit for the rural households in India?  (iii) Why still a large number of people still depend upon informal sources of credit?

Q: Distinguish between formal and informal credit resources. [CBSE 2008 Comptt. (D), 2016(F) Comptt. 2022, 2023] Or Q: Explain any two features each of formal sector loans and informal sector loans. [CBSE March 2011, 2016(D)] Or Q: What are the two categories of sources of credit ? Mention four features of each. [CBSE 2013(D)] Or Q: "The credit activities of the informal sector should be discouraged'. Support the statement with arguments. [CBSE 2016(D), 2018 Comptt.] Or Q: How does the credit vary substantially between formal and informal lenders ? Explain with examples. [CBSE 2022] Q: Describe four major sources of credit for rural household in India. [CBSE 2008 Comptt. (D)] Or Describe the sources of formal and informal credit in India. [CBSE March 2011] Hint:  Cooperatives and commercial banks Professional and agriculture money lenders Government and other formal sources Self Help Groups Relatives and Friends Q: How can the formal sector loans be made beneficial for poor farmers and workers ? Suggest any five measures. [CBSE 2016 (0)] Or Q: Explain the importance of formal sector loans in India. [CBSE 2019 (D)] Q: In situations with high risks, credit might create further problems for the borrower. Analyse the statement. NCERT Or Q: Describe the bad effects of informal source of credit on borrower. [CBSE 2019 (D)] Q: Why do we need to expand the formal sources of credit in India? Or Q: "There is an urgent need to expand formal source of credit". Analyse the statement. Q: Explain the term "debt-trap'. Why is it more rampant in rural areas? Give two reasons. [CBSE 2011] Or Q:"Credit can play a negative role". Justify by arguments. [CBSE 2019 (0)] Or Q: "Credit sometimes pushes the borrower into a situation from which recovery is very painful". Support the statement with an example. [CBSE 2020 (O), 2021 Comptt.] Q: Explain the social and economic values for which it is necessary to expand formal sources of credit in India. [CBSE 2014]

1. Formal Sector: 

• Includes banks and cooperatives, 
• Supervised by the Reserve Bank of India (RBI). 
• RBI Supervision: 
• To ensure banks maintain cash balances 
• Provide loans to a wide range of borrowers, including small cultivators and industries. 
• Periodic reporting to RBI on lending details is required.
• How much they are lending, 
• To whom, 
• At what interest rate, etc.

2. Informal Sector: 

• Comprises moneylenders, traders, employers, relatives, and friends.

No Supervision:

• Informal lenders operate without supervision, 
• setting their interest rates and 
• using any means to recover loans.

High Interest Rates: 

• Charge significantly higher interest rates, 
• making borrowing more expensive.

• Impact on Borrowers:
• High borrowing costs mean borrowers allocate a larger portion of their earnings to loan repayment, leaving less for themselves.

Debt Accumulation and Traps: 

High interest rates - leading to mounting debt and a debt trap.

Deterrent to Entrepreneurship: 

• The high cost of borrowing can discourage individuals from starting businesses, 
• Hindering economic development.

Way Forward:

Importance of Affordable Credit: 

Expanding access to affordable credit from banks and cooperatives is vital for: 

• Enhancing income, 
• Enabling various activities like farming, business, and Industrial ventures, 
• Contributing to the country's development.

Why are credit arrangements not fair for all sections of society? Give three reasons. Suggest two remedies for the problem. [CBSE 2014] Or Why is the share of formal sector credit higher for the richer households compared to the poorer households? Give any three reasons responsible for this. [CBSE 2014]

What does all this suggest? 

First:

1. Credit Gap: 

• The formal sector fulfills only half of rural credit needs, leaving the rest to informal sources with high interest rates.

2. Ineffective Borrowing: 

• Informal loans often offer little income benefit to borrowers.

3. Solution: 

• Banks and cooperatives must expand rural lending to reduce reliance on costly informal sources and better serve the community.

Secondly, 

1. Expansion formal sector: 

• Expanding formal sector loans is crucial, but it's equally important to ensure that loans reach everyone.

2. Current Imbalance: 

• Currently, wealthier households access formal credit, leaving the poor with informal options. 

3. Equality Required: 

• To provide affordable loans to the poor, formal credit distribution should be more equitable.

SELF-HELP GROUPS FOR THE POOR

Q: Explain SHGs. Or Q: What is the idea behind forming the Self Help Groups or the SHGs ? Explain the functioning of the Self Help Groups or the SHGs. [CBSE 2008, 2009 (0) 2015 (D) 2016 (F)] Q: Self Help Groups enjoy a lot of freedom in their functioning. Explain. [CBSE 2014, 2015] Q: How are 'Self-help groups' the building blocks of the rural poor? Explain with examples. [CBSE 2022] Or Q: Self Help Groups can help in solving the problem of credit in rural areas. Explain. Or Q: How are SHGs the best source to help the poor people ? [CBSE 2015] Q: How do SHGs act to provide a platform for women to address their various social issues ? [CBSE 2015] Or Q: Self-Help Groups are the building blocks of organisation of the rural poor. Suggest any three ways to make them popular for social issues. [CBSE Comptt. 2020]

Why?

1. Lack of Bank Accessibility

2. Large documentation and Collateral required

3. Informal Lenders' Harassment

• No collateral (Knownablity)
• High interest rates, 
• Lack transaction records

Self Help Groups (SHGs) for Financial Inclusion:

1. Innovative Approach: 

• To provide loans to the rural poor, especially women.

2. SHGs Formation: 

• Rural poor, typically women, are organized into Self Help Groups (SHGs), 
• comprising 15-20 members from the same area. 
• They meet and save regularly.

3. Varied Savings: 

• Members contribute Rs 25 to Rs 100 or more, depending on their savings capacity.

4. Internal Lending: 

• Members can borrow small loans from the SHG at lower interest rates than moneylenders.

5. Bank Eligibility: 

• If the SHG consistently saves for a year or two, 
• It becomes eligible for bank loans, 
• Enhancing access to formal credit for the rural poor.

Group-Centric Loans: 

• Loans are approved in the name of the SHG, 
• Aiming to generate self-employment for members.

Used for Diverse Purpose: 

• To free mortgaged land, 
• cover working capital (e.g., seeds, fertilizers), 
• purchase materials (e.g., bamboo, cloth), 
• acquire assets (e.g., sewing machines, cattle), and 
• for housing materials.

Why they get formal credit (SHGs):

Collective Decisions Making: 

• On savings and loan matters, i
• Including loan purpose, amount, interest rates, and repayment schedule.

Group Responsibility: 

• The group is collectively responsible for loan repayment, 
• Serious action against non-repayment cases.

Collateral Alternative: 

• Banks are willing to lend to poor women organized in SHGs despite the lack of traditional collateral due to this strong group structure.

Benefits of SHGs: 

• Access timely loans, 
• collateral-free loans at reasonable interest rates. 
• Foundation for organizing rural communities. 
• Regular group meetings provide a platform to address various social issues, including: 
• Health, 
• Nutrition, and 
• Domestic violence.

Grameen Bank of Bangladesh

Grameen Bank of Bangladesh is one of the biggest success stories in reaching the poor to meet their credit needs at reasonable rates. Started in the 1970s as a small project, Grameen Bank in 2018 had over 9 million members in about 81,600 villages spread across Bangladesh. Almost all of the borrowers are women and belong to the poorest sections of the society. These borrowers have proved that not only are poor women reliable borrowers, but that they can start and run a variety of small income-generating activities successfully.

1. What was the initial size and scope of Grameen Bank when it began in the 1970s?    a) A large-scale national bank    b) A small project    c) A regional cooperative    d) An international organization 2. How many members did Grameen Bank have in 2018?    a) 9,000    b) 96,000    c) 9 million    d) 81,600 3. Who primarily makes up the borrower demographic of Grameen Bank?    a) Wealthy individuals    b) Men from urban areas    c) Impoverished women    d) Young entrepreneurs 4. What significant achievement have the borrowers of Grameen Bank demonstrated?    a) Their ability to secure large loans    b) Their success in starting and running small income-generating activities    c) Their preference for borrowing from men    d) Their focus on urban development Answers: 1. Answer: b) A small project 2. Answer: c) 9 million 3. Answer: c) Impoverished women 4. Answer: b) Their success in starting and running small income-generating activities